It was a rough day for the markets as investors are starting to get a sense corporate America is struggling to keep revenues growing. We continue to see a pattern of EPS beats and revenue shortfalls littered across the earnings landscape. Companies are also getting leaner, as evidenced by this morning’s job cut announcement from DuPont (DD).

Speaking of DuPont, the company’s results disappointed investors. Other names seeing investor selling included United Technologies (UTX), Western Digital (WDC), and Reynolds American (RAI). We have commented recently on the tobacco sector and the recent weakness hitting some of the key names. Our take is the businesses aren’t revenue growth-oriented so much as they are huge generators of cash. In a yield-starved investment environment, the sector should still be on investors’ radars during any significant pullbacks.

It wasn’t all red on the screen today, as several names bucked the overall selling, courtesy of earnings beats primarily. Shares of Whirlpool (WHR), Harley-Davidson (HOG), United Parcel Service (UPS), and Coach (COH) all gained on their earnings news/announcements. Coach also announced a large share buyback program that is supposed to run till 2015. As we always say, share buybacks are not the best way we’d like to see cash deployed to increase shareholder value.

“Eat It”

Coaching Little League baseball offers quite the life lessons, especially when havoc begins to occur on the field. One of the things we try to do as coaches is limit the mistakes made on any one particular play. Often times, if you have ever been to a little league game, you will hear coaches yell out the phrase “eat it”. This basically hints to the player with the ball to not throw it. Why this happens is that when the ball gets thrown around too often during one play in a little league game, not too many good things result.

This phrase had me thinking about how traders/investors should sometimes consider “eating it,” meaning to stop putting good money after bad. I have known my share of investors hurt badly when doubling and tripling down on a stock that has gone against them. Even worse sometimes, they will just let losing positions languish for months or even years. The though is, “I could have sold it higher than where it is currently, so why sell it here?”. Eventually the drip lower is completely ignored and the stock is left alone to sit in a portfolio, all the while the capital that should have been salvaged could have been put to better use in a much better stock idea.

When you think about it, “eating it” is an early form of discipline that we teach kids. The lesson is to not compound one mistake with another, and then another. I wish some investors could adopt this mantra as part of their own wealth-building strategy in this ever-changing investment landscape.

Income, Income, Income

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